ICC contributes to major report on trade finance developments

Data from ICC’s Trade Register and Global Surveys on trade finance is extensively cited in a new report which examines the structure and recent evolution of the global trade finance market, and the interplay between changes in trade finance and international trade.

Published by the Bank of International Settlement (BIS), the long-awaited report, entitled Trade finance: developments and issues, reviews available data sources and what they reveal about the size and evolution of trade finance markets.

“The BIS report provides important insight and analysis on the performance and impact of trade finance in recent years, in turn helping business and policy communities to better understand the dynamics that may affect the market’s resilience,” said Kah Chye Tan, Chair of the ICC Banking Commission.

As the world’s leading trade finance industry representative, ICC provides independent, accurate and in-depth analysis of trends in trade finance and began compiling data in response to a call from the World Trade Organization to provide data for G20 leaders ahead of their first economic Summit in 2008.

“ICC has recently made its trade finance market intelligence and analytics available to the BIS. Data from the ICC Trade Register and the ICC Global Surveys, is extensively used in the BIS report and has provided evidence that trade finance is safe and worth promoting. ICC wants to continue to be seen as the main broad industry vehicle for exploring drivers and trends,” said Thierry Senechal, Senior Policy Manager of the ICC Banking Commission.

The new BIS report shows that historically, the global trade finance market was considered liquid and well-functioning and accordingly did not attract much attention from policymakers. As the global financial crisis developed in 2008-09, however, the industry experienced a great deal of turbulence, leading to structural adjustments and changes in the industry.

In November 2012 the BIS Committee on the Global Financial System (CGFS) established a Study Group, chaired by John Clark (Federal Reserve Bank of New York) which aims to improve central banks’ understanding of the structure and functioning of the trade finance markets and explore how they can cooperate in better tracking trade finance developments to improve financial stability.

In terms of financial stability risks, the BIS report concludes that losses on trade finance portfolios historically have been low. Moreover, given their short-term nature, banks have been able to quickly reduce their exposures in times of stress though indicates that a potential stability risk may take place when banks run down trade finance books in response to funding and liquidity strains, thus allowing trade finance to act as a conduit of stress from the financial system to the real economy.

The ICC Banking Commission has consistently advocated a fair and rules-based multilateral trading system that would work to the benefit of nations at all levels of development. As a result, policies that would broadly address banking system capital and liquidity vulnerabilities, and seek to avoid or contain disruptions to trade finance flows, are welcome.

Mr Senechal said: “ICC re-affirms its intention to maintain a constructive dialogue with policymakers and regulators worldwide. As a source of objective information on trade finance, the ICC Banking Commission is well positioned to make a valuable contribution to discussions concerning proposed regulatory changes for the industry.”